Employer responses to family leave programs

Published: 02 November 2020

Author: Arizo Karimi, And Rita Ginja, And Pengpeng Xiao, And

Search frictions make worker turnover costly to firms. A three-month parental leave expansion in Sweden provides exogenous variation that we use to quantify firms’ adjustment costs upon worker absence and exit. The reform increased women’s leave duration and likelihood of separating from pre-birth employers. Firms with greater exposure to the reform hired additional workers and increased incumbent hours, incurring additional wage costs. These adjustment costs varied by firms’ availability of internal and external substitutes. Economy-wide analyses show that a higher reform exposure is correlated with fewer hires and lower starting wages of young women compared to men and older women.

Keywords: Parental Leave, Firm-Specific Human Capital, Statistical Discrimination.
JEL-codes: J13, J16, J21, J22, J31.


Working paper 2020:18 is written by Rita Ginja, Arizo Karimi, och Pengpeng Xiao. Contact-person is Arizo Karimi, arizo.karimi@nek.uu.se, or +46 (0)73 6738 999